What Thiel’s Exodus Could Mean to Facebook, Valley

By

Jon Swartz

Feb. 16, 2018 12:00 p.m. ET

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Billionaire Peter Thiel's decampment from what he calls left-leaning Silicon Valley for Los Angeles not only threatens his tenure on the Facebook (FB) board, but signals a political and cultural inflection point of sorts.

Illustration:
Getty Images

The co-founder of PayPal (PYPL) and early investor in Facebook has never shied from sharing his views of the Valley—he summed up its conformity in a recent speech at Stanford University as a "one-party state."

His disaffection is reflective, some say, of tech's growing reputation as an elitist colony on the Left Coast—one populated by fabulously wealthy, larger-than-life titans of industry out of touch with the rest of the country. The resentment has led to a backlash against Silicon Valley's growing influence in our lives and its outspoken advocacy of liberal causes.

"One reason the maestros of tech are becoming political targets is because they are seen as partisan and disdainful of Middle America," The Wall Street Journal Editorial Board says.

Facebook, in particular, is feeling the wrath of consumers, regulators, advertisers, and other tech leaders for its content and the negative effect it has on some of its users. (It was Thiel who famously made a key $500,000 investment in 2004 in the then-unknown Facebook to help send it on its way to what it is today: a company valued at more than $500 billion.)

Thiel's valuable counsel at a time when Facebook faces so much criticism may give some investors pause, even though the social-networking giant has grown into one of the most successful tech companies ever, as evidenced by soaring digital ad revenue and a user base of 2.13 billion people.

Facebook shares slipped 1.4% to $177.36 today.

Born in Frankfurt, Germany, Thiel has roots on Wall Street as well as Silicon Valley. He worked as a derivatives trader for a unit of Credit Suisse Group. In 1996, he established hedge fund Thiel Capital International, which traded futures on equity indexes, debt, and foreign exchange. He co-founded PayPal in 1999, which was sold to eBay (EBAY) for $1.5 billion in 2002.

Thiel, 50, who is worth an estimated $2.6 billion, owns a home in Los Angeles and has pondered the idea of starting a conservative news organization. Southern California is home to far-right media operations such as Brietbart.com despite the affinity for liberal causes in Hollywood. And Thiel, through his funding of a lawsuit that shuttered Gawker Media, is no stranger to the media game.

Thiel's move 400 miles south should not shock anyone familiar with his views on the region and his work as an adviser to President Donald Trump. He was one of the few high-profile tech executives to openly support Trump, writing a seven-figure check to his campaign, and as a member of the transition team, and he helped organize a tech summit in New York with the president-elect in December 2016.

In leaving for L.A., Thiel joins a fledgling tech scene that might welcome his expertise. He runs Founders Fund, one of the more-respected venture-capital firms in the valley, and helped found Palantir Technologies, an analytical software company, in 2004.

“Despite his [fortune], he’s still very much a black sheep in the Bay Area,” says Chris Cunningham, founder of C2 Ventures, a privately-held investment firm with a focus on consumer data and financial techs such as blockchain. “It’s like the classic cocktail party, where everyone says the same thing.”

“Los Angeles is an up-and-coming tech landscape, which he probably identified as a place to be a leader and not compete with the Bay Area crowd,” Cunningham says. “He can shine there.”

The Los Angeles area last year landed 530 venture funding deals, about double those of a decade ago, according to the National Venture Capital Association. Regional start-ups collected $6.5 billion, nearly triple the $2.2 billion a decade ago.

"Thiel is simply moving because the medium of social media in now at an inflection point, and the next hot spot, production expertise, is the rubrique of Hollywood," says tech sage Joshua Harris.

And he isn't alone: Reddit co-founder Alexis Ohanian recently invested in Open Listings, an online retail brokerage based in L.A.

A personal note: I asked my Facebook friends what they thought of Thiel's exit. They uniformly say, "Good riddance."

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Facebook shares drop almost 7% on Friday's disclosure of mishandling of user data by the consulting firm Cambridge Analytica, KLA-Tencor buys fellow chip equipment maker Orbotech, Deutsche Bank analysts are bullish on fiber optics name II-VI but negative on Arista Networks, GrubHub stock is getting pricey according to Stifel analyst John Egbert, Fitbit finds a new believer in Craig-Hallum's Alex Fuhrman, ex-chairman Paul Jacobs of Qualcomm is hoping analysts will vote in sympathy with him at the company's shareholder meeting on Friday, Dell topped server sales in Q4 and bumped aside Hewlett Packard Enterprise, Google's Diane Greene is mulling a big acquisition to boost the company's cloud services, Apple is moving forward with its own display technology called "micro LED," and Oracle is set to report results after the closing bell.

"While it's background noise for investors in the near-term, with the News Feed overhaul and other actions that Facebook has implemented over the past few months, its clear with more 'heat in
the kitchen from the Beltway' that further modest changes to their business model around advertising and news feeds/content could be in store over the next 12 to 18 months," analyst Daniel Ives wrote.

What Thiel’s Exodus Could Mean to Facebook, Valley

Billionaire Peter Thiel's decampment from what he calls left-leaning Silicon Valley for Los Angeles not only threatens his tenure on the Facebook (FB) board, but signals a political and cultural inflection point of sorts.

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